MarketView for April 15

Summary  

Stock prices moved higher on Wednesday amid signs that the recession could be abating. However, Intel was a drag on the Nasdaq's gains after the company’s comments that economic uncertainty ruled out a clear revenue forecast. The strength of the day came from the financial sector as American Express gained almost 12 percent after defaults rose only slightly after months of deterioration.

Along with American Express, JPMorgan Chase ranked among the largest advancers on the Dow Jones industrial average after JP Morgan indicated that it plans to post solid numbers in terms of quarterly results on Thursday morning. JPMorgan gained 6.1 percent to $32.56.

Procter & Gamble also led the Dow higher after the maker of Tide laundry detergent and Crest toothpaste raised its dividend by 10 percent. P&G's stock ended the day up 3.2 percent to close at $48.75.

Hope that the economic slump was showing signs of abating rose after a report indicated that manufacturing activity in New York State contracted less severely in April, while the Federal Reserve's Beige Book indicated the economy continued to weaken, but the contraction's speed was fading. Indeed, the New York state manufacturing data contradicted a separate Federal Reserve report showing that industrial output at the nation's factories, mines and refineries dropped 1.5 percent in March

Driving the rally in part were some positive comments from some major banks and hopes that the economy was showing signs of stabilization. However, those hopes were somewhat in conflict with Tuesday's unexpected drop in retail sales.

In another sign of improved sentiment, the CBOE Volatility Index .VIX, considered to be Wall Street's fear gauge, closed at its lowest level since the end of September. And homebuilder sentiment rose in April to its highest level since last October, the National Association of Home Builders said on Wednesday.

The NAHB/Wells Fargo Housing Market index rose to 14 from 9 in March, emerging from single-digit territory for the first time in six months, the group said in a statement. April's increase was the largest one-month gain since May 2003.

Life Is Improving Says Fed

The economy continued to weaken in March and early April but the speed of contraction was fading amid scattered signs the country's recession may be nearing an end, the Federal Reserve said on Wednesday.

"Five of the 12 districts noted a moderation in the pace of decline, and several saw signs that activity in some sectors was stabilizing at a low level," according to the Fed's Beige Book summary of anecdotal reports from its 12 regional banks. The survey was based on information collected by the Federal Reserve Bank of Dallas on or before April 6.

The Fed has cut interest rates to almost zero to beat back a severe recession sparked by the collapse of the housing market, but Fed Chairman Ben Bernanke on Tuesday said there were tentative signs the economic decline was slowing. Fed officials point out that this massive monetary stimulus, together with unprecedented programs to promote growth by flooding markets with money, should gradually restore growth this year.

In particular, the Fed has tried to boost demand for houses by purchasing mortgage backed securities. This has helped drive home loan interest rates to the lowest level in a generation and the strategy appeared to be gaining traction.

"Housing markets remained depressed overall, but there were some signs that conditions may be stabilizing," the Fed said. "Outlooks for the housing sector were generally more optimistic than in earlier surveys, with respondents hopeful that increased buyer interest would lead to better sales."

The survey still painted a bleak picture of an economy reeling from a prolonged recession that has cost millions of jobs, with unemployment rate reaching 8.5 percent last month.

In particular, labor market conditions were described as weak with lay-offs, temporary shutdowns and hiring freezes widespread. The New York Fed, whose banking-heavy district has been hammered by the financial crisis, characterized the supply of available workers as "inexhaustible".

"Many 2008 college graduates are still looking for jobs, with 2009 graduates now entering the market," it said. As a result of this economic slack, districts reported downward pressure on prices, including significant discounting among retailers and many service providers cutting fees.

Consumer spending remained soft, but some districts said sales rose compared with the depressed levels in the previous reporting period. Big ticket and luxury item purchases declined, while spending on food and necessities fared better, the Fed said.

Manufacturing, which has also been hurt badly in the slowdown as demand for new cars crashed, continued to weaken across the board in most districts.

"Several firms in these sectors noted that demand for products related to autos or housing ranged from 'weak' to 'horrible'," the Philadelphia Fed said.

Consumer Price Index Falls

Consumer prices fell in March, posting their first 12-month drop in nearly 54 years, and industrial production slipped further, according to a report by the Labor Department on Wednesday. The Labor Department said its Consumer Price Index fell 0.1 percent last month, after rising 0.4 percent in February. On a year-over-year basis, consumer prices dived 0.4 percent, the first 12-month decline since August 1955, as weak demand undercut energy prices.

Core prices in March rose 0.2 percent to stand 1.8 percent above their year-ago level. A rise in the cost of tobacco accounted for more than 60 percent of last month's increase. Energy prices dropped 3 percent in March after rising 3.3 percent the previous month, while the food index eased 0.1 percent for a second straight month.

In a separate report, the Fed said output at the nation's factories, mines and refineries dropped 1.5 percent in March as businesses pared orders and cut inventory. For the first quarter, production plunged at an annual rate of 20 percent.

Although output fell for a sixth straight month in March, pushing the amount of the nation's industrial capacity being used to a record low 69.3 percent, analysts said this reflected an aggressive effort by businesses to pare inventories, which could lay the groundwork for an eventual pickup in growth.

Crude Falls

Oil prices fell marginally on Wednesday as government data showed U.S. crude stocks last week were at the highest level since September 1990. The Energy Information Administration's weekly inventory report showed a 5.6-million-barrel rise in U.S. crude stocks, to 366.7 million barrels.

Domestic sweet crude for May delivery settled down 16 cents per barrel at $49.25 after a day of see-saw trading. ICE Brent crude settled down 17 cents at $51.79.

OPEC said Wednesday that world oil demand would fall by 1.37 million barrels per day in 2009, up from its previous forecast for a fall of 1.01 million bpd. "In the coming months, the market is expected to remain under pressure from uncertainties in the economic outlook, demand deterioration and the substantial supply overhang," OPEC said.

Both the International Energy Agency and the EIA have also just reduced their global demand forecasts. In its monthly outlook released on Tuesday, the EIA cut its 2009 world oil demand forecast by 180,000 barrels per day to just over 84 million bpd.